Banking will stay, but what about banks?

K. B. Sivakumar | Updated on January 16, 2018 Published on December 08, 2016

Just imagine No more queues   -  RV Moorthy

Fintech is already changing practices and processes in the banking sector. It is the harbinger of new-age banking

Many obits have been written in technology journals about banking and other financial institutions. There is enough material circulating that predicts the crumbling of financial institutions under the new wave of fintech disruptors. New York, London, Dubai, Hong Kong will no more hold sway as financial centres. There is a WhatsApp moment coming that may see the financial giants fall to a new-age Goliath.

Various regulators have recently started taking steps to either enforce guidelines or assign special cells to focus on fintech startups. There were three announcements in the past couple of weeks around regulatory sandboxes: The Australian Securities and Investment Commission (ASIC) announced the launch of a sandbox for fintechs to test ideas and have an easier journey through the licensing process. Singapore’s Monetary Authority (MAS) announced that their sandbox idea is being opened up for public consultation. Abu Dhabi’s Financial Services Regulatory Authority (FSRA) also released a consultation paper specifically targeting robo-advisors and blockchain in the last few weeks. India’s central bank recently approved starting over a dozen payments banks — these included technology startups and institutions with no prior banking experience.

In Ireland, fintech is at the centre of the government’s Strategy and Vision for International Financial Services 2020, with the strategic goal being detailed as: “drive research, innovation and entrepreneurship in the IFS sector, with a particular focus on financial technology and governance, risk and compliance”. The governments in Singapore, Hong Kong and the UK are all driving the same fintech hub agenda and are working hard to attract investments from global banks. Fintech has resulted in and is leading to the development of new, innovative and agile solutions to data and reporting challenges.

All these add credibility to the recognition that technology is on the verge of disrupting banking domains that were once considered proprietary to banks and financial institutions.

The technology score

Technology is being embraced on a higher scale of maturity in many industries; banking and financial services were the early adopters. As a result, most banks are now shutting down physical presence to go more digital in their services.

However, what is now being seen is the speed of that change impacting the core of the functions that were once considered particular to banking. Account creation and servicing, payments and transfers, peer to peer lending, merchant purchases, and third party authentication and settlements are somefunctions where banks defined the rules.

Now the fintech disruptors are coming up with solutions that lead to questions about the staying power of existing banking giants across geographies. Will we have new-age tech banks in this millennium? Still, there are many core functions that remain untapped. Biometric authentication such as face and voice recognition, paperless transaction processing and payments, automated settlements involving third parties, non-batch-based validation, seamless switch across institutions for payments, image-based documentation for storage and processing, and many others offer plenty of opportunity to adopt.

Changing nature of services

Through evolution, what has changed is the way banking services are offered. A reserve currency, a record of value, a certificate of holding, a proof of financial security will continue to exist. What will evolve or change is the way they are stored, how they are identified and how are they transacted. Banking will stay but banks will have to move on from the way they do business today.

As Bill Gates said in his book, The Road Ahead: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”

A shift is bound to happen. It may not be an immediate fintech disruptor; it could potentially be a set of inventions being developed and may be even overlooked in the immediate future. But that disruption may create a new digital reserve currency, a ‘soft’ record of value, a digital certificate of holding and biometric proof of financial security. In this process, the role of banks as a trusted identity of monetary transaction may be questioned.

Maybe the WhatsApp moment in financial services will have a player who will be the largest bank in the world but does not own a bank licence! Welcome new-age banking.

The writer is a Singapore-based banker

Published on December 08, 2016
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